BAC212 Lecture Notes - Lecture 6: Perpetual Inventory, Consignor, Consignee

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pinkcheetah659

19 Dec 2015

School

Bishop's University

Department

Accounting

Course

BAC212

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Document Summary

Need to consider ownership of goods when taking inventory. Goods in transit at the end of the period make the determination of ownership more complicated: determine who has legal title of goods in transit, include in inventory if company has legal title. Apply freight/shipping concepts from chapter 5: fob shipping point versus fob destination. Ownership of consigned goods remains with the owner (the consignor), not the holder of the goods (the consignee) Goods taken home on approval by a customer are still owned by the company. Once inventory quantities are counted, must apply unit costs to determine total cost of inventory. Units of the same inventory can be purchased at different prices. Can only be used where: actual costs of each item can be determined, goods are easily distinguished, or for goods produced and segregated for specific projects. Cost formulas assume a flow of costs that may not be the same as the.

Related Questions

1 - The most appropriate procedure an auditor can use toensure integrity of the sales and collection cycle isto:

a) Confirm accounts receivables balances.

b)Ensure the bank reconciliations are preparedby one who also handles sales returns so missing items can beaccounted for timely.

c)Recalculate the sales list price of allproducts in the computer files that are accessed by salepersonnel.

2 - When performing audit procedures, which of thefollow must be set prior to testing a sample?

a)Achieved upper precision limit

b) Computed error rate

c) Tolerable error rate

3 - When auditing the inventory cycle the auditor shoulddo all of the following EXCEPT:

a)Adjust the balance in the inventory accountto reflect the perpetual inventory counts

b)Assess the value of obsolete or damagedinventory

c)Review the procedures for the count ofphysical inventory.

4 - Tests of controls for the acquisition and paymentcycle are usually done by:

a)Inquires and documentation of management'srepresentation.

b)Recalculating sales tax amounts

c)Sending out confirmations for amounts under$10,000

5 - Cash is the most desirable asset for people tomisappropriate, when determining risk as part of the audit process,cash would have a higher:

a) Control risk

b)Detection risk

c) Inherent risk

6 - When an auditor looks at a report with over 500purchases and decides to review all of the purchase over $1,000,000this is an example of what type of sampling:

a)Judgmental sampling

b)Statistical sampling

c)This is not sampling

7 - Upon review of your audit findings your discovercash receipts from sales on account have been misappropriate. Whichof the following internal controls may have preventedthis:

a)Ensuring the same person that receives thepayments from customers does not enter transactions into thejournal and post to the ledger

b) Do a background check on all accountspayable personnel before they are hired

c)Verify that the person who receives thepayments does not also write the checks

8 - Upon review of your audit findings you not weakinternal control system that allows a department supervisor to"clock in" for a fictitious employee and then approve theemployee's time card at the end of the pay period. This fraud wouldbe detected if other controls were in place, such as having anindependent party:

a)Compare the date of the recorded check in thepayroll journal with the date on the canceled checks and timecards

b)Distribute paychecks

c)Recompute hours worked from time cards

9 - Different professional standards apply to differenttypes of services offered by a CPA. Assurance services performed bya CPA would include:

a)Audits of financial statements

b)Bookkeeping and accounting system consultingservices

c)Tax service

10 - A CPA may perform all of the following services fordifferent clients EXCEPT:

a)Audits

b)Legal advice relating to accounting ethicsviolations

c)Tax preparation

11 - If an auditor discovers material misstatement afterthe audit report is issued the auditor's first step should benotify

a)The audit firm's legal council

b)The audit committee of the client

c) The client

champagnepig561

Solve the following QS and Exercises from your textbook in chapter 8.

QS 8-1

Internal control objectives

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

____	1.	Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud.
____	2.	The primary objective of internal control procedures is to safeguard the business against theft from government agencies.
____	3.	The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.
____	4.	Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

QS 8-2

Cash and equivalents

Choose from the following list of terms/phrases to best complete the following statements.

a.	Cash
b.	Cash equivalents
c.	Outstanding check
d.	Liquidity
e.	Bank reconciliation
f.	Current assets

____	1.	The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts.
____	2.	The term __________ refers to a companyâs ability to pay for its near-term obligations
____	3.	The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes.

QS 8-3

Internal control for cash

A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.

____	a.	A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
____	b.	A voucher system of control is a control system exclusively for cash receipts.
____	c.	A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.
____	d.	A petty cash system is not a control procedure for safeguarding cash.

QS 8-4

Petty cash accounting

The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

____	a.	Fund amount is being reduced
____	b.	Fund amount is being increased
____	c.	Fund is being eliminated
____	d.	Fund is being established

Exercise 8-13^A

Documents in a voucher system

Match each document in a voucher system in column one with its description in column two.

Document

1.	Purchase requisition
2.	Purchase order
3.	Invoice
4.	Receiving report
5.	Invoice approval
6.	Voucher

Description

____	A.	An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	C.	A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
____	D.	A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
____	E.	A document used by department managers to inform the purchasing department to place an order with a vendor.
____	F.	A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Exercise 8-14^B

Record invoices at gross or net amounts

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct.	2	Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30.
	10	Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2.
	17	Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30.
	27	Paid for the merchandise purchased on October 17, less the discount.
		31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you

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BAC212 Lecture Notes - Lecture 6: Perpetual Inventory, Consignor, Consignee

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